The headline could have been talking about the private equity real estate industry’s current penchant for hotels—what with the two public lodging REITs taken private last week—but it wasn’t. The article dealt with the seemingly insatiable demand for hotels in Las Vegas.
Since the boom started, the Las Vegas Strip looks a bit like Dubai: hot and dry and dotted with self-enclosed pleasure domes and skyscrapers, which are interspersed with cranes, cranes and more cranes.
Perhaps what’s most surprising is the fact that demand keeps rising—the city’s weekend occupancy rate is around 95 percent and is even higher at the new hotels—but also that it seems impervious to all the factors that were suppose to suck away business.
Some say the smaller, regional casinos across the US are acting more like a farm team—to borrow a baseball analogy—training the uninitiated how to be gamblers, before they graduate to the bright lights of Sin City. Even the rise of hotspots like Macau, which recently outpaced the Strip in gambling receipts for the first time, doesn’t seem to be deterring foreign visitors from pouring into town.
Of course, private equity real estate has long since checked into the hotel/casino business and, with demand staying strong, this surely isn’t going to be a short stay. Flexing those opportunistic muscles, firms are betting on a number of different strategies in Las Vegas: rehabbing old, but landmark, hotels; investing in local casinos that appeal to residents; expanding the conference centers to lure more business travelers.
This week, in fact, Goldman Sachs’ Whitehall Street funds acquired four Nevada properties from Carl Icahn for $1.3 billion, including the Stratosphere on the Strip, known for its tower which calls Seattle’s Space Needle to mind. The remaining three properties were local casinos in Las Vegas and Laughlin.
In March, California Stockbridge Real Estate Funds worked with Los Angeles-based hospitality, nightclub and real estate developer SBE Entertainment to acquire and rehabilitate the Sahara. Meanwhile, DLJ Merchant Banking acquired the Hard Rock for $770 million earlier this year with an eye towards maximizing the casino’s conference capabilities. And Texas Pacific Group and Apollo Management took gambling company Harrah’s private last year in a headline-grabbing, $17-billion deal.
But plans are now on the board for something even bigger: Privately held MGM Mirage is planning to spend $7 billion on City Center, a new mixed-use complex with a 4,000-room hotel. Reported be the largest privately financed project in US history, it will cover 67 acres adjacent to the Strip and sport six towers, a convention center, 500,000 square feet of retail and, of course, condos—an increasingly integral component of any Las Vegas project.
With the city’s surprising capacity for new product and private equity real estate’s growing comfort with the casinos and hotel sectors, firms will no doubt continue to bet on Las Vegas. And if the city’s property fundamentals continue to defy expectation, the increased wagers will no doubt pay off.
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